Rite Aid pushes forward with store remodels

CAMP HILL, Pa. – Rite Aid Corp. expects to have about a quarter of its store base converted to its "wellness store" format by the close of its fiscal year next March.

Rite Aid's 1,000th wellness store opened its doors during the second quarter.

In a conference call on Rite Aid's fiscal 2014 second-quarter results, company executives noted that the drug chain reached a milestone during the quarter by opening its 1,000th wellness store remodel. The retailer had closed out its previous fiscal year with 797 wellness stores overall.

"By the end of the quarter, we had 1,019 wellness stores and remained on track to reach our goal of having 1,200 by the end of the fiscal year," Rite Aid president and chief operating officer Ken Martindale told analysts during the call on Thursday.

"Our wellness remodels continue to be very well-received our customers," he said. "As in recent quarters, our wellness stores outperformed the rest of the chain in terms of front-end same-store sales. We are also seeing momentum in the pharmacy as same-store script count for our wellness stores outperformed the rest of the chain in the second quarter as well."

Martindale said 114 stores were remodeled to the Genuine Well-Being format in the fiscal 2014 second quarter. As of the quarter's end on Aug. 31, Rite Aid had 4,604 stores overall.

The wellness format features an enhanced pharmacy presentation and expanded health services, including a room for pharmacist consultations and immunizations, as well as innovative front-end merchandising and a new look and feel throughout the store that makes it easier for shoppers to navigate. There's also a service associate dubbed the "wellness ambassador," who helps customers find items, directs them to product information and acts as a bridge to the pharmacy.

"As we expand our wellness format to additional locations, we are continuing to staff these stores with our customer-focused wellness ambassadors, who are specifically dedicated to providing a higher level of customer engagement," Martindale said in the conference call. "By the end of the second quarter, we had more than 1,700 wellness ambassadors working in our stores to deliver this highly personalized level of customer service."

Chief financial officer Frank Vitrano said in the call that in the wellness stores, front-end comparable-store sales topped those of the non-wellness stores by 3.4% in the second quarter. Prescriptions filled in the wellness locations also exceeded script count in the other stores by 0.9% in the quarter, he added.

In response to an analyst question, Vitrano explained that the latest results indicate the wellness stores' performance is edging past initial projections for the concept.

"We were expecting to get a 3% kind of overall store growth, and what we're seeing now is on the front end we're starting to exceed that and on the pharmacy side that's continuing to progress," he said. "So we're certainly getting more comfortable with the results out of the remodels."

Rite Aid's fiscal 2014 capital expenditures budget of $400 million includes $175 million for remodels, with plans to open one new store, relocate 14 stores and complete 400 wellness store remodels, according to Vitrano. "We also expect to close a total of 50 stores, of which the guidance includes a store lease closing provision for 10 to 15 stores, with the balance closing upon lease expiration," he said.

The drug chain, too, has continued to add to its prescription market share via file buys. "We completed $24 million in prescription file buys during the second quarter and are currently on pace to meet our goal of the year of $65 million," Martindale said in the call.